At the beginning of last week, it looked like gold was running out of steam as it failed two days in a row at the psychological resistance level of $1,200. But then Federal Reserve Chair Janet Yellen gave a two day testimony which breathed new life into the yellow metal. The comment that really caught the gold market’s attention was when Yellen said she was unaware of anything preventing the Fed from having a negative interest rate. A negative interest rate environment would be decidedly favorable for gold as the opportunity cost of owning it versus other assets would be lowered. The negative interest rate chatter circling around the markets allowed gold to race all the way up to $1,260 before profit taking capped it.
Yesterday, China returned from being off a week in celebration of their New Year as an active seller of gold. Before their holiday, the Chinese were accustomed to a gold price $100 cheaper than the one they saw this past Monday morning. And with equities recovering and attracting investment, the Chinese were eager to liquidate gold positions. Gold has now erased all of its gains since Yellen’s negative interest rate commentary. It touched into the low $1,190s today before rebounding but it feels like it wants to test lower after such a big run up over the past several weeks. Silver has tracked lower with gold this week but will look to find support at its 200 day moving average at $15.07.